Goh Choon Phong, CEO, Singapore Airlines
All things being equal, passengers would rather fly nonstop. It is a compelling advantage to really pick off most premium demand.
We don't see 2017 to be very different from the year that just passed. The US economy has grown, and I think looks fairly positive.
In Europe, we're still seeing weakness. India, of course, is growing well. Southeast Asia is generally healthy, but it isn't even. It's still a growth region with a fair bit of potential, with some countries, Vietnam, Philippines, growing well. But with others, Malaysia and Singapore, for example it's a bit of a slowdown.
China, yes, there's a slowdown, but it's a slowdown on a very big base. It's still a significant economic force, and we expect that to continue. We're seeing reasonable traffic coming out of China, though there's a perceptible slowdown in the premium segment.
But Chinese travellers are still coming out and visiting the rest of the world. Japan and Korea benefit the most because of proximity and the weakness of the yen.
North Asia, inbound, is not an issue, but traffic into Europe has not grown as much. Outbound to America, that's a bit challenging. Demand has stayed regular between Australia and Europe.
For close to a decade now, we've noticed that there is actually a structural change in the industry. Lots of capacity is being added by the long-haul Middle Eastern and Chinese carriers and short-haul, low-cost carriers (LCCs).
South-east Asia has seen a huge proliferation of LCC players, rapidly growing from almost nothing to hundreds of aircraft
So the question for us was: What do we do? How do we strengthen ourselves in this new environment?
What we have done is quite a departure from the last 60 years. We had always been an airline that's focused on full, high-premium service and product, with Singapore as a hub for worldwide, organic growth.
But over the last five to six years, we have branched out to set up a portfolio of airlines. We started up Scoot, an LCC targeted at medium-to-long haul, operating 12 Boeing 787s. We have [regional LCC] Tigerair, which we are now integrating with Scoot for greater synergy and connectivity.
They're able to penetrate markets that had demand but that cannot be viably served by the full-service model. In the past we didn't have the right vehicle to serve it. We expect that Scoot and Tigerair will contribute even more significantly to the underlying profit of the group in the future.
For full service, we still have Singapore Airlines, which is operating widebody, medium-haul and long-haul, and we have SilkAir, which is a full-service regional operation. So it's all there and gave us a lot of flexibility to deploy the right tool to respond to strength of demand.
Demand changes over time. For example, we used to operate Singapore Airlines to Athens, with a full-service provision. But it wasn't economically viable because there wasn't enough premium traffic. There was a lot of leisure, and visits to friends and relatives, so we dropped the route from Singapore Airlines, and it will be operated by Scoot next year.
Scoot is more than 45% lower in terms of unit cost compared to Singapore Airlines and can be profitable on that route.
It can work the other way around as well. We have operations that started off with LCCs and then moved in our portfolio as the traffic built up with more premium travellers.
I mentioned our traditional focus on Singapore as a hub, with organic growth from there. It's great for servicing South-east Asia and the South-west Pacific, and we continue to strengthen the network into both.
But the Middle Eastern carriers may be better positioned geographically for some markets because they reach more land mass within six or seven hours. So if, for instance, somebody from India, which is a huge market, wishes to fly to Europe, they wouldn't come via Singapore. So we looked to set up a joint venture overseas.
By 2025, India will be the third-biggest travel market in the world after China and the US. And India-based carriers that are operating internationally still have, relative to other foreign carriers, a small footprint internationally.
We set up Vistara, a joint venture with Tata Sons, and started operations in 2015 with 13 aircraft. India, to be sure, is a very difficult market to operate in, and there's a lot of LCC capacity, so we have to nurture it well. But it has already achieved a great reputation as having the best product and services in India.
This portfolio approach is important because it gives us the nimbleness and flexibility to deploy the right aircraft for the right competition for the right route to serve the right segment. And that is quite key to the way we actually are able to manage the market dynamics.
With overseas investment, we are very clear on what market is suitable for what model. I think most people would acknowledge that Thailand is a very attractive destination for budget-conscious travellers. So NokScoot, our joint venture with Nok Air in Thailand, is a regional LCC in Bangkok.
With these joint ventures, you need to build the right foundation, the right philosophy, the right service culture.
There are exciting changes ahead for Singapore Airlines as well. We ordered 67 [Airbus] A350s, which will be a gamechanger for us. For a while, we had not been growing long-haul because the existing equipment wasn't fuel-efficient enough to serve long-haul in a viable manner. But the A350s bring new capabilities. It's 20% to 25% more fuel efficient and has the right capacity.
Our A350s configure in business, premium economy and economy for a total of 253 seats. So it's not a very big aircraft, but has good range. For example, we use it for Singapore to San Francisco. And we are using it nonstop for secondary points in Europe, such as Dusseldorf, Germany, which allows us to bring premium passengers from Singapore there without having to stop in the Middle East.
All things being equal, passengers would rather fly nonstop. It is a compelling advantage to really pick off most premium demand.
You can read Goh Choon Phong’s full interview with Travel Weekly editor in chief and senior vice president, Arnie Weissmann, in Travel Weekly USA.